BEYOND THE NUMBERS
Even as some states take steps to help people who are struggling the most due to the pandemic and recession, policymakers in some other states are doing exactly the opposite of what this crisis calls for: proposing extreme tax cuts that would primarily benefit the well-off, weaken the state’s ability to help those facing hard times, and worsen racial and economic inequities.
Because of the pandemic, millions of people are going without enough food, facing eviction, and struggling to pay their utility bills and other household expenses. Millions of children have effectively lost a year of schooling. Depression, suicidal thoughts, and other mental health problems increased sharply after the pandemic hit. All that suffering — which has been concentrated in low-income communities and communities of color — adds to pre-existing hardships, worsening the pandemic’s toll and highlighting the need to finally address these inequities. Meanwhile, the stock market has hit record highs and incomes among the well-off have risen.
Yet Governor Tate Reeves of Mississippi and Governor Jim Justice of West Virginia, two states with high poverty rates even before the pandemic, have proposed eliminating their state income taxes, which account for 31 and 40 percent of state tax revenues, respectively. They say this wouldn’t reduce funding for schools, health care, and other services because people and businesses would flock to their states. This claim assumes that state taxes are the driving factor in where people and businesses locate, but studies show they aren’t.
Further, because the income tax is the only major state tax based on ability to pay, eliminating it would ultimately shift who pays for schools, health care, and other services away from the wealthy and toward low-income people, who not only have been hit hardest by the pandemic but already pay more of their income in state and local taxes than wealthy families do. In fact, the Mississippi House recently passed a bill to raise the state sales tax rate to replace part of the lost income tax revenue. Sales taxes fall much harder on families with less income, since they must spend a larger share of their income to buy necessities. (When Mississippi’s white supremacist legislature adopted the nation’s first general sales tax in 1932, policymakers considered this a feature of the sales tax because it enabled them to shift state taxes from property owners, most of whom were white, to consumers with little else to tax, many of whom were Black.) Governor Justice’s plan in West Virginia also includes a sales tax hike.
Plus, income tax revenues tend to grow with the economy over time much more than sales taxes, so shifting to sales taxes would force a state to keep raising its sales tax rate — or gradually cut funding for schools, health care, and other services.
Tax cut proposals in several other states would have similar if less drastic effects. Arizona Governor Doug Ducey has proposed cutting income taxes, which would undermine the revenue benefits of a ballot measure voters approved just last November to raise income tax rates for the well-off to better support the state’s badly underfunded school system. Montana Governor Greg Gianforte and legislative leaders are pursuing income tax cuts as well. New Hampshire Governor Chris Sununu wants to eliminate the state’s only tax on income, which applies to interest and dividends. And in Kansas, which largely repealed massive income tax cuts several years ago after they failed to deliver a promised economic boom, some lawmakers have proposed corporate and personal income tax breaks that would most benefit high-income people.
In fact, all of the proposals mentioned above would disproportionately benefit high-income people, who as a group are already doing very well. They also would reduce revenues needed to pay for health care, schools, and other services that most help people in low-income areas and communities of color — places hit hardest by the pandemic.